37 thoughts on “Sutherland: EU Must Rethink Ireland’s Deal”

  1. It’s quite a trick to write an article on the subject with just one reference to a bank — the World Bank!

  2. Surely its obvious that the chairman of Goldman is just protecting the interests of their investors?

    Now that that most of private investors losses in Goldman look like they have been secured against having to take those losses due to their socialisation by the Irish tax payer, Sutherlands attention is now back on trying to ensure that there is no sovereign default in Ireland which would result in losses for Goldmans investors.
    He now suggests that European tax payers share in the socialisation of the losses of Goldmans investors as the Irish don’t look as though they are capable of doing it by themselves even with the huge austerity efforts they are making.

    Golman don’t really care who prevents their investors taking losses they just don’t want to have to take losses.

    This article should be read in that extremely biased light.

  3. The bail-out terms can be changed,it is only a piece of paper.
    The corporate tax rate cannot be changed,we have a piece of paper that says so!


  4. It is worth noting in this context that the British and Dutch loans to Iceland in December 2010 have an interest rate of 3.2 per cent and these loans are over a longer period. Also the EU’s balance of payments support to Hungary and Latvia does not have a penalty premium like Ireland.”

    Even more compelling is the argument the penal rate of 5.83% contains a penalty EFRF premium over the standard IMF rate of 3-4%, eg 4% suggested recently by the IMF for South Korea. But this 5.83% is what the incompetent Honahan brought home to us. Not surprising really when we consider he was taken by surprise when he found out the EU/IMF bailout teams would be visiting Dublin. Honahan had spent the previous year standing on the shore like King Canute telling the markets to go back! Not that he was alone in this as he was egged on by Lenihan and Alan Ahearne and a host of cronies.

    The article is a craven attempt by Sutherland to take pressure away from the real focus of solution to our crisis. This is the burning of secured and unsecured senior and subordinate bondholders to the tune of €50 bn. It should be a lot more but repayments which havn’t been fully laid out before the public, have already been made, mostly out of bailout money.

    I’m afraid we’ve been poorly led and Trichet has with the collaboration of senior political figures in Ireland, rolled over and burned Irish citizens. Firstly, by handing us a bailout loan which is mostly to be sent into the banks and sent to bondholders; secondly, sent to the disastrous NAMA; thirdly, sent to keep the Croke Park gravy train.

    I’d like to be optimistic and suggest a eurowide solidarity tax of 6% similar to the post unification German one, to pay for economies like ours and the economic disaster that’s befallen them.

    Anyways, nothing in the article there suggesting we should burn precious bondholders, some of whom probably come from his G Sucks:) With Joan Burton led away with her background in accountancy and economics, the wagons are circling to protect the banxters, so I guess Sutherland is preparing the ground for some concessions to the 5.83% he’ll claim come from his intervention.

    We’ll be as poorly led in these negotiations as before with now Alan Ahearne promoted to the board of the Central Bank on foot of his support for Lenihan’s 5.83% and the rest of the above. Charge of the Light Brigade all over again!

  5. The Eurointelligence people are clearly on the right side in these debates, and yet they write that Sutherland’s article made their blood boil.

  6. Off topic.
    I would like to say well done to Sarah Carey.
    Here article in the Irish times today struck a chord with me.

    It is an argument that needs to start being made a lot more forcefully in Irish corporate and political circles.

    I did disagree with the following part but in fairness it was not representative of the main thrust of the article.

    “Without confidence our problems do get worse. It is possible to talk down an economy simply by scaring the bejaysus out of people. Sometimes, pretending everything is okay can keep the show on the road long enough for everything to be okay. And sometimes there is nothing for it but to face the worst.”

    Perhaps if she had said “Without realistic confidence” I wouldn’t have had a problem.

    Alan Greenspan has openly admitted his over emphasis on the importance of confidence in the US market was a huge mistake. It was part of the whole free market neo-liberal philosophy that encouraged self delusion once it helped the market.
    Unfortunately people like Brian Lenihan and his advisors went on believing this stuff for too long and probably still do.
    And yes the lack of reality and substance in some of the financial aspects of the programme for government do not bode well.

    How often do we hear Swiss Politicians come out expressing confidence in their banking system or Germans shouting about their high end engineering export success. Not too often.
    If something is working well you don’t need to shout about it. Its obvious for all to see.
    The Confidence expressed by Brian Lenihan was analogous to the confidence given by a chairman for his manager in a football club. Once the chairman is talking about his confidence in the manager rather than the evidence of the managers success you know the managers game is nearly up.

  7. Heard a good line on the Radio from a guy whose name I didn’t catch. He was commenting on the Portuguese situation and was saying they may be waiting for rate to be reduced before tapping the Euro funds.

    He commented in relation to the difference between the rates offered by the EFSF and the IMF that there shouldn’t be a penalty for being in the EU/Eurozone. It is a fair point.

  8. The EuroIntelligence article can be found by Googling “Just in time for the summit, eurozone bond yields achieve new records”.

    I don’t know what made their blood boil. For a start they (and Sutherland) got their facts wrong. The 2015 target for the 3% deficit is not part of the bailout program, which is only three years long. It is part of the SGP. The agreement to extend this to 2015 was reached last year by Ecofin since they didn’t believe the growth projections in the National Recovery Plan were realistic. Calling it a “unilateral breach on the contractual terms with the EU” is just plain wrong.

    Knowing that the target was 2015, FG decided to talk about a 2014 target, and Labour to talk about a 2016 target to please their own constituencies. After last week’s discussions on the Program for Government they agreed on 2015, which brought them right back to where they started. Imagine that!

    Sutherland is only stating the blindingly obvious on corporation tax. Ireland has a veto on harmonized tax rates and being forced into a CCCTB and will use it. CT forms no part of the bailout conditionailty. If any change to the bailout is contingent on changing CT then the change won’t happen. No government would give way on this one week into office.

    I thought the article was pretty innocuous and lightweight.

  9. @ DJR

    “The bail-out terms can be changed,it is only a piece of paper.
    The corporate tax rate cannot be changed,we have a piece of paper that says so!”

    Eh, no, you’re confusing pieces of paper with legal Treaties, agreed by the Irish citizenry. I know democracy sucks, but there ya go.

    @ Eamonn

    Suds is a proud Irishman and a former FG-heavyweight. Is it really that unreasonable to think he is taking a genuine interest in the conditions being faced by his native country and the newly elected government?

  10. @Mr. Bond,

    Fair point about ‘Suds’ as you call him, but afaik Ireland isn’t paying his tab – at least not directly.

  11. I read the article without reading any of the comments here and my attitude was positive in a sense that it is good for the mood music, without having any regard to GS issues etc.

    I believe it’s a better tack than Bruton’s with the his focus on the past.

  12. @Peter Sutherland

    Going with the populist flow now Peter? Slight change in tune wha! Bit behind the curve ball ….

    S’pose you’ll be advisin us all to invest in Shenandoah and Blue Ridge next wha!

    Forget the interest rate – couple of inches of the hangman’s rope – get on the real issue: restructuring of vichy-bank debt that Irish citizens are saddled with – are you still capitalist by the way? IF so, act like one.

  13. @BEB: “Is it really that unreasonable to think he is taking a genuine interest in the conditions being faced by his native country and the newly elected government?”

    Easy to talk:Tad more difficult to act. Man concentrates on who is filling out his paycheck. We all do.

    This ‘re-negotiation’ nonsense is just that, nonsense. It is well understood that the Irish taxpayer will not be able to sustain the mandated payment schedule – absent truly shocking levels of reductions in salaries, wages, service charges, etc. that will be paid using new (additional) credit. Do these spinners think that all of us are complete gobs****s, that we all flunked Sixth Class math.

    Why do those of us who can do simple math, not just call it as it will be. When the ‘tanks are (already) in the streets’ its pointless threatening us with such an event.

    I demand reform now, and to-morrow, and next week, and next month, and next year:The time for procrastination has expired. Will I be lucky? Nope! No harm trying though.

    BpW

  14. Investment banks hire a small number of people for a special role in the organization, called “golden retrievers.” Anyone who has had one as a pet will know that golden retrievers have lovely golden hair, are very friendly to one and all, are not very bright, but are good at simple “fetching” type tasks. The same applies to golden retrievers at investment banks — they provide a friendly public face, make all sorts of public-spirited sounding statements, but do not represent the true thinking behind the mainline money making activity within investment banks. They also do not carry much credibility at all among those “in the know” within the industry; their rhetoric is just for uninformed public consumption.

  15. @ Eoin Bond

    Suds is a proud Irishman and a former FG-heavyweight. Is it really that unreasonable to think he is taking a genuine interest in the conditions being faced by his native country and the newly elected government?

    Well if he had written an article around Sep 2008 advocating that Private investors should take their losses in order to save little Ireland it would have been believable but i seem to remember Him advocating the opposite.

    So the answer to your question is yes.

  16. Greg,

    My word you’re tough. Telling an Irish male he is harmless is about as rough as you can get 🙂

  17. I take at least two issues with the article.

    The loans to Iceland at 3% are totally irrelevant. These were made in their own context and have no imlications for any further interventions, other than Sudsy attempts to use it as a moral lever. The “penal” aspect of Ireland’s interest rate is decided by formula and is all about controlling moral hazard, and heavens knows the fiscal morals of some EZ countries including ourselves are not above reproach. Going soft on Ireland means going soft on Greece, Portugal, Spain…

    He repeats the hoary cheap shot about France’s CT rate being ony 8%. I don’t know the ins and outs of that claim but is Sudsy suggesting that we attract a hugely disproportionate FDI DESPITE our HIGH CT rate?

  18. Slightly off topic, though only a small bit. Anyone read McWilliams article in the Indo yesterday??

    “In Latin America, just before a bankrupt state entirely runs out of money, it is traditional to try one last smashand- grab for the savings of the private citizen. We have seen this trend not just in South America’s recent financial history but down through the ages, where kings, tyrants and emperors expropriate the wealth of the nation to prop up their dysfunctional regimes.

    Could it happen here? Could the savings of the private citizen be expropriated by the State to pay the last of the Croke Park promises? Or worse, could the remaining wealth of the private citizens be used to pay the odious debt of the banks? The answer is yes, and you have to be aware of this because this is often the way things end when a state goes bust.”

    Eh, slightly OTT even for him, no?

  19. Throughout this piece, and in his conclusion, Mr. Sutherland bases his case on the practice of the principle of mutual solidarity espoused by the EU’s founders. But, in so far as it was ever practised, it was an inward-looking solidarity. It involved an ever-increasing pooling of sovereignty to raise all members to higher levels of economic prosperity and well-being.

    To a considerable extent it has achieved this overall objective. As a result, over the last decade the focus inceasingly has been on developing economic and strategic strength and resilience to cope with, and to prosper in, a multi-polar world. Insofar as solidarity has any meaning now it is a requirement to develop common capabilities to deal with external threats and shocks – and not to deal with internal problems most believed had been resolved. (The impatience of the EU’s elites, seeking to shift from an inward-looking to an outward-looking stance, with the navel-gazing, drawn-out EU Constitution/Lisbon/TFEU process was palpable. (And Ireland did itself no favours in this respect – either by voting it down or in the compromises required to secure its eventual acceptance.))

    An EU gearing itself to focus on external challenges, understandably, has little interest in, or appetite for, expending treasure to resolve the outcome of abject and woeful governance in the peripherals. (Yes, governance failures abound in this sorry saga – at the national, EZ and EU level, but most members were sufficiently well governend to be able to manage, hide or fudge the impacts of the global credit crunch – and none allowed the emergence of the various combinations of fiscal/banking/property bubbles of the scale that characterise the peripherals.)

    The EU elites know that the peripherals require more help to avoid serious damage to the EU project, but demonstrable evidence of significantly better governance in the peripherals is required before voters in the core EZ countries will consent to financing any limited resurrection of the founders’ concept of solidarity.

    And, unfortunately, it will require fiscal support (i.e., taxpayers Euros) throughout the EU. The failures of governance, though differing in severity, have been comprehensive at the national and at the EU level. Capitalism, by its nature will always exploit failures of governance to make profits, to protect profits and to minimise losses. The failures of governance mean that cast-iron judicially enforceable mechanisms do not exist to impose losses on private investors. It is damnably difficult to devise and apply these mechanisms retrospectively – and, for numerous reasons, the political will does not exist.

    Failures of governance, unfortunately and ultimately, are down to voters and the politicians they elect. We can only hope that an appreciation of the costs of permitting a failure of the EU project and demonstrable evidence of better governance in the peripherals will give core EZ politicians conviction to secure their voters’ consent to expend treasure on shoring on the EZ system.

    Ireland made the first key step on 25 Feb. many more steps are required.

  20. @ B_E_B

    McWilliams is like a drug with the Indo the drug addict. Each infusion has to be more lethal than the last. To be fair to McWilliams he so far has been capable of delivering though what he does for his next act is hard to guess.

  21. Over on the Eurointelligence blog they have characterised Sutherlands article as “not very helpful”:

    “The commentary by Peter Sutherland in this morning’s Financial Times, calling for better terms for the Irish loan, has made our blood boil. If this article receives wider publication in France or the Netherlands, it may make things a lot more difficult for Ireland.”

    http://www.eurointelligence.com

  22. @Michael Hennigan
    “I believe it’s a better tack than Bruton’s with the his focus on the past.”
    On the contrary, I think Mr. Bruton is entirely right to concentrate on capital flows for averting crises in the future. What happened in Ireland was an emerging market capital flow bubble. A tiger economy attracted more capital than it could usefully invest = bubble. One the bubble was realised, it burst (or it burst first, the effects are the same) the tide of capital washed out = financial crisis. With no exchange rate to devalue (and even if there was, there’d be a limit to what could be achieved), debt restructuring is the solution.

    As to who prevents it happening? Who control capital flows in the eurozone? The Irish Central Bank? Surely not.

  23. It’s “risk off” again ! More running around like headless chickens for the Eurocrats.

    http://www.ft.com/cms/s/0/c52b2380-4864-11e0-b323-00144feab49a.html#ixzz1GDKm1Ecm

    “Thursday 14.40 GMT. The equity market bull rally is starting its third year with a tantrum. The S&P 500 on Wall Street has opened down 1.6 per cent, falling below the 1,300 mark, after lingering anxiety over the Middle East and concerns about slowing global growth clattered risk assets in Asian trading. Worse than expected US initial jobless claims have not helped sentiment.

    European bourses have followed the trend. The FTSE 100 in London is lower by 1.4 per cent, with miners under severe pressure following further selling in industrial metals after Chinese trade data pointed to slower demand for some raw materials. The FTSE Eurofirst 300 index is off 1.2 per cent.

    To make matters worse, the festering eurozone fiscal crisis has again burst upon the scene with a downgrade of Spain’s credit rating by Moody’s to Aa2 with a negative outlook. This has caused the euro to drop 0.6 per cent to $1.3826 and caused a flight into Bunds. Spanish bond spreads with Bunds have widened and Madrid’s Ibex index is down 1.5 per cent as the country’s banking stocks get hit.

    The FTSE All-World index is down 1.7 per cent, the dollar is once again attracting haven flows and US Treasuries are also seeing demand. Even investors’ erstwhile favourites like gold and silver are seeing heavy selling as previously successful bets are cut back.”

  24. @ Hogan

    i like the dual approach of Bruton with the harsh criticism and Sutherland with the more conciliatory overtones. I wouldn’t rule out these two ex-FGers being well aware of what the other one says and thinks.

  25. Suds may be a proud Irishman but he is also a man who has, for whatever reason, become associated with morally questionable companies – e.g. Goldman Sachs and BP. Show me your company etc..
    He may be proud to be Irish but as an Irish man I would like to know why I should be proud of him.
    He has made nothing, formed no productive companies and is seems to me to be a conduit of greed.

  26. @ seafóid

    The FTSE All-World index is down 1.7 per cent, the dollar is once again attracting haven flows and US Treasuries are also seeing demand. Even investors’ erstwhile favourites like gold and silver are seeing heavy selling as previously successful bets are cut back.”

    How wise the markets are!

    This week the USD is “attracting haven flows”; last week it was different; US Treasuries in demand and the biggest bond fund manager cuts all it exposure.

    Realx and take a Beechams!

  27. Sutherland’s article had a few elements that might better have been omitted but the Eurointelligence comment on it is total rubbish. Apart from the errors with regard to nature of what has been agreed with Ireland, Eurointelligence trots out the same argument as was used by Daniel Gros in his WSJ article about the liquidity assistance being made available by the ECB without entering into the detail of why it became necessary.

    On the corporation tax issue, the source of the comment about the 8% effective rate (i.e. the actual amount raised as opposed to the nominally feasible) for French corporation tax is the French Cour des Comptes in a comprehensive report it published on “niches fiscales”.

    The text agreed in the context of the second Irish referendum on the Lisbon Treaty is worth recalling as it is simply a confirmation that the treaty does not change anything in the existing situation. (“Nothing in the Treaty of Lisbon makes any change of any kind, for any Member State, to the extent or operation of the competence of the EU in relation to taxation”). In other words, all decisions in relation to taxation continue to be taken by unanimity, there is no basis in the treaties for harmonisation of direct taxes (contrary to the situation in relation to indirect taxes such as VAT) but there is also no change in the Commission’s ability to submit proposals in the area of company law (internal market) with regard to the basis on which company taxation is calculated, the famous CCCTB. In this and other areas of the internal market, decisions are taken by QMV under co-decision. However, the possibility of the necessary majority being found among the 27 is nil. Turkeys, after all, especially the new Member States, do not vote for Christmas. Hence the insistence on the use of the new article in the Treaty on European Union providing for enhanced cooperation by a minimum of nine Member States but this can only be used “as a last resort”. Such is the position arrived at the moment with regard to the introduction of a European Patent (40 years under discussion).

    The point about the debate on corporation tax is not that it is not a major irritant to countries competing for scarce FDI and eroding, as they see it, their own tax bases (which is certainly not the case with regard to France but is with regard to Germany) but that it is irrelevant in the present context. What matters is that the two major euro economies, France and Germany, align their tax systems but there is no sign whatever of this happening each busily trying to outdo the other in tax concessions of various kinds.

    The Eurointelligence article is surprising in another sense in that Wolfgang Munchau was the first to actually dissect the operation of the EFSF which is designed to avail of the creditworthiness of the AAA countries, without costing them any cash and actually earning them a tidy and exorbitant sum based on a rate which is higher than the nominal rate.

    It is an odd situation when the EU shows less solidarity than the IMF. Portugal may well decide to confine its request for assistance to that body. What a comment on the state of the European Union! On this point, Sutherland is surely correct!

    cf. recent letter by Regling to FT, especially the following gem:

    “The EFSF has put into place additional credit enhancements through the use of a cash reserve and loan-specific cash buffer which are immediately deducted from the loan made to a borrowing country in order to provide additional reassurance to investors. Consequently, all claims on the EFSF are 100 per cent covered by triple A guarantors and cash”.

    http://tinyurl.com/65bm3l8

    P.S. Fellow bloggers will, no doubt, also be reading the major article in the FT on the supposed growing opposition in countries such as Finland and the Netherlands to any changes in the EFSF terms. No surprises there from the City! Why spoil a good thing, especially when what you are buying is AAA paper against which a bank need hold no capital reserves (as pointed out by Professor Sinn in his group’s excellent paper)?

  28. Greece + Goldman = Toxic in EU PR Terms

    Ireland + Sutherland_Goldman = Toxic in EU PR Terms

    Sutherland is not a fool, far from it, but this intervention was foolish. Most centrally, he well understands that THE EZ Crisis relates to DEBT and the necessity of resolution at EZ/EU/ECB level – as ex EU Commissioner this is the level where he might, maybe, have had some impact.

    Little John, on the other hand, is comin on.

  29. @ Paul Hunt

    ‘Failures of governance, unfortunately and ultimately, are down to voters and the politicians they elect’

    Yes, but the choices put before the public are always framed by party politics. The party machines are are in turn shaped by individual and corporate private interests. The individual voter is about as ‘free’ as the individual consumer, and the profit usualy lies in offering the solution which disturbs the fewest sleeping dogs.

  30. @BWII
    “McWilliams is like a drug with the Indo the drug addict. Each infusion has to be more lethal than the last.”
    Are we approaching peak McWilliams? Or peak doom, perhaps?

    Nah, didn’t think so…

  31. @Brian Woods II: “Moral Hazard” is a moveable feast. It’s existence in the financial systems of the European core apparently merits no punishment.

  32. So what’s the Goldmann angle? Do they know what’s coming – ECB withdraws support. Taxpayers then step in and an even bigger taxpayer bailout is engineered.
    I have no doubt that FG are being told to play tough with the Europeans. But are they being deliberately being distracted into discussing the sharpness of the executioners act as opposed to the fairness of the execution?
    We’re in for a really tough time methinks

  33. So what’s the Goldmann angle? Do they know what’s coming – ECB withdraws support. Taxpayers then step in and an even bigger taxpayer bailout is engineered.
    I have no doubt that FG are being told to play tough with the Europeans. But are they being deliberately being distracted into discussing the sharpness of the executioners axe as opposed to the fairness of the execution?
    We’re in for a really tough time methinks

  34. I know that this thread is almost ended but can we look at the impact of the Japanese earthquake on the EFSF?
    From my understanding Japan was due to be a major contibutor – essentially lending money to Europe to lend to Ireland to lend to its banks who owe the money to German banks.
    Is it moral to ask Japan to lend money when it needs so much money itself now – especially when default along that chain is almost inevitable?
    Surely the lending needs to go in the other direction now!
    It just doesn’t make sense to me at all

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